How to Trade Gold and other Commodity ETF's

Whether you are trading stocks, ETFs or futures, technical analysis is the
preferred choice for short term traders. Technical analysis in short is the
study of price and volume movements on charts. It can be used for studying
charts in any time frame whether you are a 1 minute chartist or a long term
investor using monthly charts.

Using technical analysis in my opinion really opens the door for a trader
to lower his/her overall risk when investing money. I always like to know if
the investments I am watching are trading near a critical price level (support
or resistance). During these times you can take positions that have very clear
entry and exit points for trading. Also it puts the odds in your favor when
a position is entered in the same direction of the underlying trend.

Price action is how we make money in the market, so I strictly follow price
and volume when trading as they are the least lagging indicator on what the
market it doing.

I have put together a few charts using commodity ETFs to show you what I am
seeing in the market and what we should expect to see in the coming days.

GLD ETF Trader - Daily Trend Chart

The gold trading chart below shows two different types of trends. The initial
timeframe of the chart illustrates what I call a Normal Trend. This
is a series of higher highs and lows.

This type of trend allows an investment to continue profitably for a very
long period of time. For example a daily chart like the one below can continue
to trend like this for 6-8 months. The reason for this is because price appreciation
is increasing at a rate which investors are comfortable with. Also, the pullbacks
cleanse the investment vehicle of weak traders every few weeks allowing fresh
money to enter at higher price.

Now if you look at the later timeframe of this rally we observe a rally phase
I call an Extended Rally. An extended rally is when price appreciates
without any pullbacks.

You can make a fortune with this trend very quickly, but you must realize
that reversals are fast and sharp. And that, we observe, is how GLD performed
in December. While some call December's price drop a pullback, I call it a
technical breakdown. The sharp price reversal and heavy volume associated with
this type of move generally provides excellent short term momentum trades.
A lot of damage is done to the investment on a heavy volume breakdown taking
weeks for a recovering to occur.

The DIA exchange traded fund shows a very similar chart as gold above. First
we have a nice Normal Trend that then evolved into an Extended Trend.
The trend for the DIA index fund is not nearly as steep at the gold chart,
so it could trend a little longer. But once the price breaks down, everyone
is going to be selling out to lock in gains and cut losses before new positions
are entered.

I have several tools and stats I use for helping me in timing turning points.
Some are great short term indicators only predicting 1-2 days out like following
small cap stocks, or gold stocks in relation to the broad index, and others
are long term things like cycles, volume analysis, market internals and the
volatility index.

My point here is to keep everyone alert and ready to take profits if we see
things start to roll over. Friday there was BIG selling volume across the board
- so don't blink now.

Silver & Gold ETF Trading - Daily Charts

Below is the chart of the silver ETF SLV and I overlaid the GLD gold fund
in green so you can see how they move in sync. The blue boxes on the chart
show the pattern that I think is forming and what to expect in the coming days.

From looking at gold in both other currencies and with respect to gold stocks
which have been underperforming, I feel we are going to see lower prices still.
At the moment I am neutral on silver and gold for the short term time frame
(daily & 60 minute charts).

USO Crude Oil Fund - Daily Trend Chart

Oil has slid lower the past 5 sessions and is now nearing a support level.
This has me looking for an oversold bounce with the potential to rally much
higher. I am keeping an eye on this for any possible low risk setup.

UNG Natural Gas Fund - Daily Trading Chart

While UNG is not a great intermediate and long term fund to invest in, I do
find it trades very nicely for intraday and short swing trades. I am neutral
on natural gas for the time being. It could go either way from here and I'm
not willing to take on a 50/50 probability trade. Let's wait for something
exciting to form.

Commodity Trading Conclusion:

In short, gold and silver have been underperforming the market recently which
is not what we want to see. They have led the market higher all year but are
now taking a breather.

The way I see gold, silver, oil and natural gas is that they are trading below
their recent highs and still have more room to fall before landing on a solid
support level.

The stock market is now over extended and looks ready for a sharp correction.
If this happens we will see commodities drop and test lower prices also.

There is not much we can do right now other than protect our current long
positions by tightening our stops. Depending on the strength of the breakdown,
there could be a great opportunity for short term traders (60 minute chart
traders) to make some quick money. I expect a sell off which will last 3-5
days at the least.

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized
market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while
reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and
investment newsletter service. Chris is responsible for market research and
trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors
around the world. He designed an automated algorithmic trading system for the
S&P 500 index which solves his client's biggest problem related to investing
in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows
individuals to investing using either exchange traded funds or the ES mini
futures contracts. It is supported by many leading brokerage firms including:

He is the author of the popular book "Technical
Trading Mastery - 7 Steps To Win With Logic." He has also been featured
on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe
Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and
dozens of other financial websites. His list of personal and professional
relationships approaches 25,000, people with whom he connects and shares
is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations
management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight
pilots license. He resides in the Toronto area with his wife Kristen and two
children.